Almost since time began, the nimble small business has been axiomatic. Large corporations are like big ships, the common knowledge goes. They take a long time to change direction.
Entrepreneurship
Wealth managers and financial industry observers have pointed out that we are in the midst of a
The Value Gap is one of the most used phrases in exit planning. Simply stated, it’s the difference between what a business owner would realize if he or she sold the company today, and what they need to embark on a financially secure “next act” after business ownership. Both amounts can be determined with some accuracy by professionals. A qualified appraiser will analyze a company, its prospects, differentiation, markets, and comparative businesses and develop a value for the business. A good financial planner will look at savings, expected income, anticipated lifestyle expenses, life expectancy, and inflation and develop a scenario for the amount needed to fund those expectations. Simple, right? Financial plan requirements minus net proceeds from the business transfer equals the value gap. Testing the Value Gap If it is so simple, why do so few business owners do it? Instead, they value their businesses by hearsay, misestimate their lifestyle needs by a substantial margin, and think “I’ll probably be fine.” In fact, fewer than one owner in five has even documented any plan for their transition. Let’s take my favorite business owner, Bob of Bob’s Widgets Inc. Bob pays himself $120,000 a year and lives nicely on that amount. So he estimates that $10,000 a month should cover his lifestyle in retirement. To generate that, he needs $3,000,000 in savings with a 4% return. That means he has to sell his business for about $4,000,000, assuming 24% capital gains tax. His company sold $7,000,000 in widgets last year, with a $500,000 pre-tax bottom line, so he is sure it’s worth at least $4,000,000. (We’ll discuss this valuation in my next column.) But wait a minute. Is Bob really making $120,000 a year? He drives a Ford Super-Duty company truck that cost $85,000. The payment is about $1,500 a month. Insurance, maintenance and fuel are paid for by the company. Bob’s Widgets Inc. also pays for Bob’s $750 a month health insurance, his $1,200 monthly life insurance, and his $7,200 annual personal tax preparation bill. “Sellers Discretionary Expenses” Bob’s company expenses are not only common, but he doesn’t really take all that much in comparison to some owners. Any advisor can tell stories of company-paid second homes, family trips and other expenses far less business-related than Bob’s. Without going beyond what would be considered “normal” owner perks, we can add about $58,000 a year in post-tax spending to Bob’s lifestyle. At his 4% return assumption, that adds another $1,450,000 in post-tax proceeds from the business to his need for a liquid asset base. Even if Bob’s assumption of a lower capital gains rate is correct (which is not the case in 90% of small business sales) he actually needs a sale price of at least $6,000,000 just to maintain his current lifestyle. Even Bob knows that his company can’t sell for $6,000,000. Without getting an appraisal or a formal financial plan, Bob has just had his first lesson in planning for the Value Gap. This article was originally published by John F. Dini, CBEC, CExP, CEPA on
Unlocking Retirement Savings to Fund a New Business Many people have dreams of starting a business but lack the capital or funding needed to launch their new business ideas. It’s true: It costs money to start a business. The
Dealing with COVID fatigue unites business owners. If that sounds strange to you, let me make my case. I’m not doing this to whine, but I want business owners who don’t have an existing support structure to know that they aren’t alone. I facilitate several peer groups of business owners. For decades, we’ve met monthly to discuss trends and issues in our businesses. It is typically a lively roundtable. Hiring, termination, customers, vendors, regulation, new initiatives, and finances present themselves at most, if not all meetings. The First Wave At the beginning of the pandemic, we increased our meeting frequency from monthly to weekly. It really helped with the news pummeling us every day. First, we had sanitation and control of infection. What should we do if an employee was diagnosed? What were the guidelines, or more accurately, the current guidelines regarding quarantine? How serious was this? Opinions ranged widely on the severity and need for action. Then came the lockdowns. Who decided that this was within the power of a mayor? Like so many regulations, it seemed to come without any discussion of the impact on small businesses. We never “blamed” the medical community. They were told to recommend the best way to slow the virus’ spread. They did. Our meetings became both strained and strange. We started living in two worlds. Some businesses were decimated, others were setting sales and profit records. The Light in the Tunnel Then came the relief bills. How did FFCRA work? Who has the poster? Will our employees all choose to go home at 2/3 pay? (Not very many did.) We traded policies and memos from HR advisors, CPAs, and law firms. Then the CARES act. BAM! $2 trillion flushed through the economy like a transfusion. We didn’t talk much about EIDL. The need to pay it back from PPP proceeds and running out of money early on focused us all on the Paycheck Protection Program. Of the 28 participants in the groups (myself included,) all 28 applied for and received PPP funds. We all shared application information and intelligence on which banks were handling it best. Again, we had concerns that the $600 unemployment bonus would dry up the recruiting market. It made things a bit more challenging, but not insurmountable. Most folks seem to prefer continuing employment. People who seek to milk the benefits to the last dollar aren’t the ones we wanted anyway. Of course, watching the collapse of the antiquated government infrastructure for unemployment may have influenced applicants as well. We traded information on remote working. How to keep employees engaged? Tips on contests, productivity tracking, and virtual technology. Those in essential industries never stopped working (see my post on
Purpose after the sale is one of the biggest challenges for an exiting owner. Purpose – “Having as one’s intention or objective.” Many exit planning advisors discuss the three legs of the exit planning stool – business readiness, financial readiness and personal readiness. In our previous two articles, we focused on two of the “big three” components of a successful life after the sale, activity and identity. The third is purpose. So many advisors point to the 75% of former owners who “profoundly regret” their transition, and say it’s because they didn’t make enough money. To quote Mr. Bernstein in the great film Citizen Kane, “Well, it’s no trick to make a lot of money…if all you want is to make a lot of money.” I’ve interviewed hundreds of business founders. When asked why they started their companies, by far the most common answers are about providing for their families and having control of their future. Only a very small percentage say “I wanted to make a lot of money.” Decades of Purpose So what kept them working long hours and pushing the envelope after they had reached primary, secondary and even tertiary financial goals? Non-owners often chalk it up to greed, but Maslov’s hierarchy of needs drifts away from material rewards after the first two levels. Belonging, Self-Esteem and Self-Actualization may all have a financial component, but money isn’t the driver. For most owners, the driving motivation is this thing they’ve built. The company has a life of its own, but it’s a life they bestowed. They talk about the business’s growing pains and maturity. Owners are acutely aware of the multiplier effect the success of the company has on employees and their families. In a few cases, that multiplier extends to entire towns. That’s the purpose. To nurture and expand. In so many cases every process in the business was the founder’s creation. He or she picked out the furniture and designed the first logo. This aggregation of people breathes and succeeds on what the owner built. That’s why so many owners still put in 50 or more hours a week, long after there is any real need for their constant presence. This thing they created is their purpose. Purpose After the Sale It’s no surprise that so many owners find that 36 holes of golf each week, or 54, or 72, still isn’t enough to feel fulfilled. You can get incrementally better, but it doesn’t really affect anyone but you. Building a beautiful table or catching a trophy fish brings pride and some sense of accomplishment. Still, it never matches the feeling of creating something that impacts dozens, scores or hundreds of other human beings. That’s why we focus on purpose as the third leg of the personal vision. In the vast majority of cases, it involves impacting other people. Any owner spent a career learning how to teach and lead. Keeping those skills fresh and growing is a substantial part of the road to satisfaction. Purpose may involve church or a community service organization. It could be serving on a Board of Directors or consulting for other business owners. It might be writing or speaking. Purpose after the sale doesn’t require a 50-hour week, but it does require some level of commitment, and the ability to affect the lives of others. This article was originally published by John F. Dini, CBEC, CExP, CEPA on
Work from anywhere has been a necessity, an epithet, an obstacle, and an opportunity over the last 3 years. To paraphrase Aristotle’s axiom about Nature (“Horror Vacui”), business abhors a vacuum. Where one occurs, it is quickly filled. Work from anywhere started as a COVID-induced necessity. During the lockdowns of 2020-2021 (and longer in some places) we all had a crash course in video calling, VPNs, and virtual meetings. Employees quickly expanded the definition of anywhere. They tired of shunting the children off to a bedroom during conference calls, or using office-like backdrops to hide their kitchen cabinets. Soon they began changing their backgrounds to something more aspirational, like a mountain cabin or a scenic lake. From there it wasn’t much of a leap to make the mental shift from a make-believe environment to a physical one. Pretty soon employees were calling in from real mountain cabins. In many cases, they shifted to someplace where the cost of living was much lower than in their former metropolitan workspace. Work from Anywhere as an epithet and an obstacle As employees moved further afield from their office environment, bosses began to sound off. “We aren’t going to pay Los Angeles wages to someone who has a Boise cost of living,” was a commonly heard complaint. Most put up with it because qualified help was getting harder to find. Hiring remotely was too hard a new skill to master. The complaints of employers grew louder as they began to ask employees to return to their former location of working activity. They made arguments about deteriorating corporate culture or a lack of mentoring opportunities. At the same time, stories surfaced about workers who were getting full-time paychecks from multiple employers, or who were “quiet quitting” by doing as little as possible. The “Great Resignation” forced many organizations to put up with it. If you wanted to keep employees, you needed to accommodate their demands. Then the work-from-anywhere poaching started. If an employee could do the job from a thousand miles away, why not just hire people from a thousand miles away? Now recruiters could dangle Los Angeles wages at candidates from Boise. Many employers saw work from anywhere as a curse costing them their best talent. Work from Anywhere as an Opportunity But as I said at the outset, business abhors a vacuum. Every action has a reaction. When the job can be done from anywhere, does that mean anywhere? If the higher cost of living centers can fill their needs by hiring people who are accustomed to earning less, why shouldn’t employers look at those candidates before the local talent? The Internet allows almost-instant communication across countries, what about across oceans? In the last few months, I’ve worked with employers who are hiring accountants in India, staffing recruiters in the Philippines, programmers in Argentina, support techs in Colombia, and screening nurses in Nicaragua. None of these employers are multinationals. Each one fits the SBA’s definition of a small business. Their new employees are educated, English speaking, have the same hours as the employer, and are thrilled for the opportunity. Some are hired directly through a local placement agency. Others work for an organization in their home country that makes them exclusive to the client and promises to replace them if needed. Most of the wages appear to be about 50% more than the same job would pay in the country of residence, and roughly half of what the position in the U.S. would cost. Business has once again filled a vacuum. I wonder what is next? This article was originally published by John F. Dini, CBEC, CExP, CEPA on
Life after the sale is often both the most important and most neglected factor in exit planning. Although (according to two different surveys in 2013 and 2022,) 75% of owners report regrets or unhappiness a year after the transition, exit plans continue to be constructed primarily around financial targets. In the event you haven’t heard this since you were five years old, “Money doesn’t fix everything.” Superficial Planning To be fair, most advisors include some conversation about “life after” in their planning conversations. Unfortunately, they are often satisfied with the features associated with an abundance of free time. Visiting the family, RV’ing through the country, playing 72 holes of golf a week, or seeing the great capitals of Europe can all be accomplished in the first year after ownership. When they attempt to broach the idea of longer-term activity, the client’s answer is often “Let’s get the money. Then I’ll worry about what to do with it.” It’s challenging to push beyond the client’s desire to focus on the most obvious goal, especially when it seems to enable everything that follows. Nonetheless, owners who are unhappy because they didn’t get enough money failed either to understand the realities of their transactions or the future cost of their life plans. That certainly isn’t 75% of planning clients. We are discussing the far greater number who have sufficient funds, but after their initial splurge of free time are unsure of what to do next. Emotional Preparation The first issue an exited owner faces is identity. “I used to own a company” quickly wears thin, and increasingly fades as years pass. “I’m retired” is a nebulous identity, and lumps them into a group with every wage earner who says the same. That’s a class they’ve proudly differentiated from for most of their lives. Some mental health professionals have compared the emotional reaction to missing ownership identity to post-partum depression. Their world has changed overnight. The principal subject of their interest is gone, and they aren’t sure what replaces it. Post-partum is characterized as including “a feeling of guilt, worthlessness, hopelessness or helplessness.” As an owner, there was always something else that needed their attention. Now there isn’t. Distress from discussing the daily news (which they now watch more frequently) used to be countered by a requirement to attend to the business. Now there is no business to attend to. The feeling of “What I do is important to a lot of people” has gone. Identity in Life After the Sale We encourage clients to at least mentally design their next business card. Handing someone your card is a shorthand version of declaring your identity. The first attempt by many is jocular but meaningless. “Part-time Philanthropist, Bon Vivant and Man About Town” is funny, but only once. “Grandparent, Outdoorsman and Classic Car Mechanic” is better. At least it describes real activities for further conversation. “Business Counselor and Chairman of the Board of (Charity Name)” describes an identity, ongoing contribution to something or someone, and a role of importance. It doesn’t have to be true today (we aren’t printing the business cards yet,) but it’s at least aspirational. Building a plan for life after the sale begins with establishing a future identity. There are several other components that we will cover in the next two articles. This article was originally published by John F. Dini, CBEC, CExP, CEPA on
Lifestyle and Legacy are two very different types of owner transition objectives. When we ask a client “What do you expect as a result of our exit planning?” the answer may be about the money, the time frame, or the impact on people. No matter how it is phrased, the response will break down into one of two major categories. It’s either about the owner’s future lifestyle, or the legacy that is left behind. Lifestyle Objectives Many clients want to exit to an enjoyable retirement. Usually, their primary concern is financial security. They want enough money to live comfortably, and to take care of their family. This is the reason many start their process by consulting with a financial planner, but lifestyle objectives can extend well beyond their bank account. A separate but related objective is time. It may be the time to travel without being chained to a laptop. The time to explore new things outside the business might result in formal education or training. Undertaking a new wellness regimen requires time, as does exploring a new hobby. Time might be used to engage in community service. An issue that is increasing in the Baby Boomer generation is the time to care for older family members. Another lifestyle issue is the ability to relocate. Moving to a place for favored activities, a better climate or to be closer to children (and grandchildren) often requires separation from the activities of the business. Legacy Objectives Some owners run their businesses for other than purely financial reasons. In these cases, they may be more concerned with how the business continues than the proceeds to be realized from a sale. Of course, a chief motivation for putting legacy at the top of the list is family succession. It might be a sense of obligation in a company that has already passed through multiple generations, or just a desire to provide future generations with the benefits of ownership. The role of the business in the community is also a legacy concern. The company could be a key employer in a small town, or a primary sponsor of a school or Little League. The owner’s name on the door or the preservation of long-standing business relationships can often affect the desirability of a buyer in the seller’s eyes. Environment, Social, or Governance (ESG) concerns have become increasingly important to some sellers. They want to make certain that the importance they place on these issues is shared by future ownership. Finally, the future growth and success of the business can be considered a legacy issue. An owner could have concern for the opportunities such growth provides to loyal employees, or whether innovations and proprietary processes will be expanded beyond their current limits. Lifestyle and Legacy Every owner’s objectives will have some combination of lifestyle and legacy concerns. They don’t necessarily conflict, but they involve differing perspectives. This article was originally published by John F. Dini, CBEC, CExP, CEPA on
Since 2013 I’ve updated this piece about the underappreciated and forgotten boss of A Christmas Carol, Mr. Fezziwig. I hope that you enjoy it. Merry Christmas! Last week was the 180th anniversary of the publication of Charles Dickens’s A Christmas Carol (December 17, 1843). The immortal words of Ebenezer Scrooge are ingrained in the memory of the entire English-speaking world. I’d venture to guess that “Bah, Humbug!” can be correctly identified as to the source and speaker by over 99% of those reading this. The novella, serialized in five parts, was not a commercial success. Unhappy with the sales of his previous novel (Martin Chuzzlewit– no wonder!), he refused his normal fee from the publisher in favor of royalties on the proceeds, which proved disappointing. Critical reception was favorable, although it didn’t catch on in America until much later. The New York Times first published a review in 1863, 20 years after its publication in England. Like most of Dickens’ work, A Christmas Carol includes an indictment of the social inequalities of the Industrial Age; child labor, workhouses, and debtors’ prisons. It stands out, however, because of the lessons taught by its memorable ghosts, and the redemption of its main character in only 113 pages. During the Protestant Reformation in England and Scotland, Christmas had become a period of penance and reflection. A Christmas Carol is credited by many for leading the return to a celebratory holiday, focused on appreciation and thanks for family and friends. Modern Ebenezers Modern filmmakers have returned to the straight-ahead plot and uplifting storyline (not to mention the recurring royalties available year after year) with a frequency that helps stamp the legend in our psyche. Starting with the 1938 Reginald Owen version (originally released as “Scrooge”) and the 1951 Alistair Sim classic, the character of Ebenezer has been tackled by actors ranging from George C. Scott to Michael Caine (with the Muppets). Patrick Stewart, Kelsey Grammar, and Rich Little (in various celebrity impersonations) have taken a shot, as have Mickey Mouse, Mr. Magoo, the Smurfs, Barbie, Dora the Explorer, and the Flintstones. Let’s not forget the variants; Bill Murray in “Scrooged”, or Boris Karloff and Jim Carrey in their versions of “How the Grinch Stole Christmas.” In all, IMDB lists almost 200 filmed variants of the story. Unfortunately, the characterization of Scrooge has become ingrained in the minds of many as a stereotype of all bosses who dare to focus on margins and profit. How many employees identify their bosses with Fezziwig (Scrooge’s former employer,) who took pride in making his employees a happy group, even though Scrooge dismissed It as “only a little thing?” The Success of Mr. Fezziwig Instead of focusing on the things that allowed Fezziwig to spend lavishly on his employees (a motivated workforce, honesty, doing what’s right, profitability), we prefer to fantasize about a boss who expresses his sudden enlightenment by unexpectedly bestowing a dinner and an extra day off. Fezziwig is relegated to an afterthought, an overweight doting uncle with no visible reason for his success. Most of us are far more Fezziwigs than Scrooges. Oddly, if we celebrated the season of giving by presenting our employees with a list of all the “little things” we’ve done for them during the year, we’d be considered self-serving, and more akin to Ebenezer. We bow to the popular myth, give even more at the holidays, and hope it has some carryover of appreciation into the New Year. Just remember to remind your employees when you are being Mr. Fezziwig for the rest of the year. A Christmas turkey for Tiny Tim isn’t as important as being a good boss on the other 364 days. This article was originally published by John F. Dini, CBEC, CExP, CEPA on
Defining the role of a coach on your exit planning team doesn’t just happen. Like any other aspect of working with consultants, you need to set expectations upfront. Many advisors like to characterize themselves as the “quarterback” of a transition planning team. I’ve always objected to that. We regard the business owner as the quarterback of the planning process. After all, the coach never gets sacked by a 300-pound defensive lineman. The advisor may want to win every bit as much as the business owner, but it’s the owner who actually has skin in the game. A Coach’s Responsibilities It’s one thing to say that you are a coach and another to act like it. Here are seven basic rules an owner should expect from the coach on a planning team.
Delegation and depth are critical when presenting your business as a buying opportunity. For many business owners, exit planning means getting the company ready for sale to a third party. There are a number of approaches to enhancing preparedness for a third-party sale. Assessing Readiness Some planning software products begin with a comprehensive survey of the owner’s impressions of readiness. Note that we say “impressions.” A Likert scale questionnaire that asks a client to rate their understanding of a statement and its possible implications with questions like “How confident are you that you know the value of your business?” and a ranking from “no understanding” to “extremely well” often creates more questions than answers. If an owner chooses “Fairly well,” for instance, does that mean he knows the value, or that he is fairly confident that he thinks he knows the value, or that he is really confident that he knows an approximate value? Nonetheless, some advisors will begin to build a plan around such subjective answers. In fact, many systems take these subjective answers and use them to produce a score and a subsequent evaluation with a dollar figure for the presumed worth of the business. Regardless of the accuracy of the owner’s responses, they have created a line in the sand regarding value. Keeping “Score” The next step is often to assess different areas of operations. Depending on the expertise of the advisor, this may focus on operating efficiencies, sales processes, marketing approaches, financial record keeping or product and customer mix. Then the advisor runs a second evaluation, presuming that these areas have a higher score. All this is intended to lead to one question. “Would you rather sell your business for $7,000,000 or for $12,000,000?” I know very few owners who would have the temerity to choose the first option, whether they have personal enthusiasm for embarking on a reorganization of their business or not. The methodology is legitimate. There is ample evidence that improved operations and greater profitability lead to a higher selling price. It may, however, create a scenario where the owner is boxed into the strategy that works best for the advisor, regardless of whether it matches the client’s objectives (“Get out as soon as possible,” for example) or the company’s capabilities. Delegation and Depth The first issue, an owner’s objectives, should be addressed by deeper discovery. That is what we preach and teach with our ExitMap® tools. The second, company readiness, is more a matter of delegation and depth. No business can embark on a comprehensive improvement process without a management team to implement it. That’s why we address Owner Centricity™ as the only area of company readiness that matters in the discovery phase of every engagement. If the client is already overwhelmed with personal responsibilities, new initiatives will just add more to an already over-full agenda. That’s a recipe for failure. We map out the management team starting with the owner’s responsibilities. Then we add those employees who are next in line for those duties, along with a 1, 2 or 3 score. One indicates that the employee is fully ready to assume the day-to-day activities of the job. A two means that the employee is generally familiar with the area, but not ready to assume primary responsibility. A three indicates that there is no knowledge or capability for this area. A 3 is also used when there just isn’t anyone available to train. Company Readiness Diagramming the management team in such a depth chart permits a far more comprehensive look at which improvements are possible now, and which will require additional training or recruiting. It also gives the advisor a better understanding of the areas the owner will have to delegate to make the business more saleable. In operational analysis, the capabilities of the management team are the principal determinant of the company’s readiness to grow. The owner’s willingness to discuss such delegation is by far the best indicator of his or her preparedness for any value enhancement efforts. This article was originally published by John F. Dini, CBEC, CExP, CEPA on
When preparing for the transfer of a business, there are many stakeholders who can impact your plan. Some have direct authority or decision-making capability over the transaction, but others may have substantial influence. In general, it’s best to presume that anyone who has a relationship with the owner or the business will have some impact on his or her decisions. Internal Stakeholders Of primary importance are partners and shareholders. Even when an owner has a voting majority, minority partners may have an official or unofficial veto. “Official” comes in the form of supermajority rights. Unofficial may be in the form of a threat to terminate employment, which in some cases may make the business unsaleable. If the minority holders are the intended recipients of the equity, they will function as both key components of the company’s value, and negotiators of the price to be paid for that value. Employees are the other major internal stakeholders. Could they be a flight risk in the owner’s absence? Are they in danger of losing special status or privilege under new management? What is the plan for informing and updating them before and after a deal is struck? Family With most business owners, their equity in the business is 50% or more of their personal net worth. That makes future ownership, sale price and coordination with the estate plan items of great interest to spouses and children. In today’s serial family relationships, that can also involve step-siblings, former spouses, and their new partners’ families. If there are children in the business, their future is inextricably tied to the company. If some children are in the business and some outside of it, the entitlements and expectations grow even more complicated. Business Relationships Customers may be transactional, as in retail, or strategic partners whose own business depends on what the company supplies. In such cases, or when customers are government entities, they may have contractual rights to approve a change in ownership. In any case, the valuation of the business is going to depend at least partially on the retention of customers. Suppliers have similar interests. We recently saw a distribution arrangement canceled simply because the supplier was insulted by not being informed about the company’s merger negotiations. The fact that they were conducted under a confidentiality agreement didn’t appease the supplier. Creditors and lenders who hold personal guarantees are bound to be concerned about ownership changes. Be proactive in letting them know how their security interests will be preserved. Public Stakeholders Government entities, especially any with regulatory responsibility over the industry, should also be approached proactively. Waiting for them to recognize a change may seem like “discretion as the better part of valor,” but untimely intervention could derail a transaction. If the company is an important employer, a candidate for relocation, or a fixture in the community, some outreach to elected officials may be advisable. Finally, consider the media. Plenty of business owners have complained about interviews that were slanted, reported inaccurately, or “just plain wrong.” If the transaction is newsworthy (and even if it isn’t,) prepare a professional announcement and a list of where it should be distributed. Refer to it, word for word if necessary, whenever someone calls for comment. Thinking in advance about the impact of an exit plan on the various stakeholders can save advisors and their clients a lot of headaches when a deal is signed. This article was originally published by John F. Dini, CBEC, CExP, CEPA on
The road less traveled is often a misimpression when considering a transition from business ownership. Surveys show that roughly 85% of owners expect their exit to happen via a sale of the business to a third party. A third-party sale is certainly attractive. The idea of monetizing decades of work in one lump-sum payoff seems equitable. Years of sacrificing to “invest in the business” is supposed to generate a return. “He (or she) sold the company” when applied to someone who is clearly enjoying a comfortable lifestyle in retirement acts as an advertisement for the benefits of cashing out. Unfortunately, that isn’t only less frequent than assumed, but it’s so infrequent as to be close to a rarity. The Numbers Don’t Lie Baby Boomers owned businesses at about twice the rate of previous or succeeding generations. Franchising and an overcrowded job market for corporate careers drove about 6% of Boomers into entrepreneurship, where the traditional average for business ownership is closer to 3% of the population. A decade ago, according to the SBA, about two-thirds of all businesses between 5 and 500 employees were owned by persons 48 years old or older. Today, just over half are owned by folks over the age of 58. That makes it pretty safe to extrapolate that around 4% of that age group still own businesses. Census data puts the number of persons turning 65 years old at 10,000 a day, so it’s a decent guess to say that 400 of those, on average, probably own a business. That’s 2,800 a week, or about 140,000 a year. Not everyone exits when they hit 65, and almost 90% of those businesses employ fewer than 20 people. For exit planning discussions, let’s divide the under and over-20 employee companies into two groups, which we will call “Main Street” and “Mid-market.” (Note- this is not a valid market definition of those two terms. For further explanation see the Afterword in my most recent work
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As an advisor, your role is to help clients prepare to exit their business, yet many people resist thinking about the future because it involves so many unknowns, decisions, and choices. And emotions typically complicate matters further, sometimes derailing the process altogether. Here are some questions that can help you establish rapport with your clients, learn more about their concerns, and move the conversation forward. How are you feeling about your work/profession/business these days? Which aspects of work are you still enjoying, and which are you ready to leave behind? Do you envision retiring from work at some point, or are you contemplating an encore career? What part of planning for your future feels most challenging? How do you imagine your life in retirement will be different from how it is now? What process are you using to figure out what you’ll do next after you retire? What would you like to see happen with your business long term? What options have you considered for the transfer of your business? What steps have you taken to make your business more attractive to a potential buyer? What are your concerns about transitioning your firm to new ownership? What would be your ideal scenario for transitioning out of your company? What topic(s) have we touched on today that we should put on our agenda to revisit? So, what happens after you pose a few of these questions and your clients open up about emotional matters? Remember, the most helpful thing you can do is to listen attentively. You’ve created a valuable opportunity for them to talk about things they may not share with other advisors. Here are some tips for managing the conversation when clients raise emotionally loaded topics: Don’t try to “fix things” by immediately offering suggestions. Doing so sends the message that you’re uncomfortable hearing their concern. You can offer suggestions but do so later. Don’t say anything that conveys the message that their feeling or concern is unwarranted. “There’s really no need to feel that way” or “I’m sure it will be just fine” may sound reassuring to you but could be experienced as dismissive by your client. Don’t immediately offer a logical counterpoint to your client’s emotion. Remember, feelings don’t have to make sense; they’re “as is”. Put another way, if feelings made sense, they would be thoughts. People report concerns and characterize their feelings differently from one another, so it’s in your best interest to seek amplification and clarification by inquiring as follows . . . “I want to make sure that I understand exactly what you mean by ___. Can you tell me more?” “People sometimes mean slightly different things when they talk about ___. What does ___ mean for you?” “Before I suggest anything, I’d like to learn more about it from your perspective.” It’s possible that during early conversations your client may hint at mixed feelings about exiting their business. That’s perfectly normal, but you need to bring it out into the open. You want to foster an atmosphere such that your client keeps you apprised about where they’re at. If they keep their ambivalence to themselves, it has greater potential to blindside you and complicate the sale. You can say: “In my experience, it’s normal to have some mixed emotions about selling. Those thoughts may not always be top of mind, but when they do pop up let’s be sure to talk about them. Believe it or not, they can help inform our process and alert us to aspects of the sale that are important to you.” You may also find that your client is overly risk averse. If so, consider saying the following: “Our work together won’t be comprehensive if we only plan for what could go wrong. That’s just half the equation. It’s fine to be conservative and err on the side of caution, but to be truly realistic we should also consider a range of possibilities both good and bad.” Author’s Note: The concepts in this article are derived from Robert Leahy’s book, Overcoming Resistance in Cognitive Therapy. New York: Guilford
For five decades, the southern United States has been an attractive location for automakers to open plants thanks to generous tax breaks and cheaper, non-union labor. However, after decades of failing to unionize automakers in the South, the United Auto Workers dealt a serious blow to that model by winning a landslide union victory at Volkswagen. In an effort to fight back, three southern states have gotten creative: they passed laws barring companies from receiving state grants, loans and tax incentives if the company voluntarily recognizes a union or voluntarily provides unions with employee information. The laws also allow the government to claw back incentive payments after they were made. While these laws are very similar, each law has unique nuances. If you are in an impacted state, you should seek local counsel. In 2023, Tennessee was the first state to pass such a law. This year, Georgia and Alabama followed suit. So why this push? In 2023, the American Legislative Exchange Council (“ALEC”), a nonprofit organization of conservative state legislators and private sector representatives who draft and share model legislation for distribution among state governments, adopted Tennessee’s law as model legislation. In fact, the primary sponsor of Tennessee’s bill was recognized as an ALEC Policy Champion in March 2023. ALEC’s push comes as voluntary recognition of unions gains popularity as an alternative to fighting unions. We recently saw this with the high-profile Ben & Jerry’s voluntary recognition. Will this Southern strategy work to push back against growing union successes? Time will tell. Brody and Associates regularly advises its clients on all labor management issues, including union-related matters, and provides union-free training. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
Almost since time began, the nimble small business has been axiomatic. Large corporations are like big ships, the common knowledge goes. They take a long time to change direction.
I once had the thrill of interviewing Jerry West on management. He was “The Logo” for the NBA, although back then they didn’t advertise him as such. Only the Laker followers knew for sure. In 1989 the “Showtime” Lakers were coming off back-to-back championships. Pat Riley was a year away from his first of three Coach of the Year awards.
Can you Offer Too Many SKUs to Your Customers? The short answer is YES! A SKU, or Stock Keeping Unit, defines each different product version that you sell and keep inventory of. There may be different SKUs of the same overall item based on size, color, capacity (think computer or cellphone memory), features, and many other parameters. For build to forecast businesses, that number of variations can quickly explode and become difficult to manage. Your customers are busy and want ordering simplified. Of course, they may need (or want) more than one variation of a product. That is reasonable and a common aspect of business – one size does not fit all! But there is a point where too offering too many SKUs is not value added either for your customer or your business. In his April 30, 2013 article “Successful Retailers Learn That Fewer Choices Trigger More Sales” in Forbes, Carmine Gallo discusses his experience and a study about “choice overload” by other authors. He writes about a retailer that “has discovered that giving a customer more than three choices at one time actually overwhelms customers and makes them frustrated…when the customer is faced with too many choices at once, it leaves the customer confused and less likely to buy from any of the choices!” Choice overload is well-documented in consumer studies but can apply in B2B as well. While customer satisfaction is important, another key concern is the often-hidden costs associated with a business offering and managing a large number of SKUs for a given product type. These costs include holding inventory, S&OP (Sales and Operations Planning) team time, small production runs, and scrapping inventory. Holding inventory takes up space, which may come with a cost or utilize racks that could be used for other products. Scheduled inventory counts take up employee time and may result in blackout periods when the warehouse is not shipping product. The more SKUs there are, including extra SKUS, the greater the potential impact. The Sales team’s forecasting and the Operations team’s purchasing reviews that are part of the S&OP process can occupy more of their valuable time if they need to consider these times. If small orders or forecasts require a new production run, this could be costly and create excess inventory. Whether from this new production or past builds, eventually it will make sense to write off and scrap old inventory, another cost impact to the company. How do you know which SKUs to focus on if you wish to look at reducing your total number of SKUs? Start by examining SKUs that have: Low historic sales over a period of time Small variations between SKUs that customers do not value Older technology or model when newer option SKUs are available This requires a true partnership between Sales and Operations. It starts with educating both teams on the costs involved – neither group may be aware of the money and time impact to the company. Periodic (such as quarterly) reviews of SKUs that meet the above descriptions should become a fixed part of the calendar. A review of the data and other available for sale options should result in the identification of SKUs which may not be needed. At that point, it is helpful to have a customer friendly EOL (End of Life) Notice process by which you inform customers of last time buy requirements for this SKU and alternates available. It is usually best to provide some time for the last time buy in the interest of customer satisfaction, although that may not always be necessary. At a company that designed and sold electronics, a robust SKU rationalization process was implemented to help address these issues. A representative from the Operations team analyzed SKUs that met a version of the above criteria and suggested candidates for the EOL process. Next, a member of the Sales team reviewed them and, where appropriate, issued product change or EOL notices to customers, providing them time for last time buy orders when needed. These steps helped reduce the work involved in maintaining these SKUs while not leading to any customer complaints. A final note – sometimes it makes sense to continue offering low selling SKUs – to support customers buying other items (hopefully in larger quantities). It may be worthwhile to encourage them to keep coming back to you for all of their product needs and this may be a way to accomplish that. But it helps to understand that this is truly the case and not assume that this customer would not be equally happy with another, more popular, SKU. Steven Lustig is founder and CEO of Lustig Global Consulting and an experienced Supply Chain Executive. He is a recognized thought leader in supply chain and risk mitigation, and serves on the Boards of Directors for Loh Medical and Atlanta Technology Angels.
When it comes to careers, business owners are a minority of the population. In conversations this week, I mentioned the statistics several times, and each owner I was discussing it with was surprised that they had so few peers. According to the Small Business Administration (SBA), there are over 33,000,000 businesses in the US. Let’s discount those with zero employees. Many are shell companies or real estate holding entities. Also, those with fewer than 5 employees, true “Mom and Pop” businesses, are hard to distinguish from a job. The North American Industry Classification System (NAICS) Association, lists businesses with 5 to 99 employees at about 3,300,000, and 123,000 have 100 to 500 employees (the SBA’s largest “small business” classification.) Overall, that means about 1% of the country are private employers. Owners are a small minority, a very small minority, of the population. Even if we only count working adults (161,000,000) business owners represent only a little more than 2% of that population. So What? Where am I going with this, and how does it relate to our recent discussions of purpose in business exit planning? It’s an important issue to consider when discussing an owner’s identity after transition. Whether or not individual owners know the statistics of their “rare species” status in society, they instinctively understand that they are different. They are identified with their owner status in every aspect of their business and personal life. At a social event, when asked “What do you do?” they will often respond “I own a business.” It’s an immediate differentiator from describing a job. “I am a carpenter.” or “I work in systems engineering,” describes a function. “I am a business owner” describes a life role. When asked for further information, the owner frequently replies in the Imperial first person plural. “We build multi-family housing,” is never mistaken for a personal role in the company. No one takes that answer to mean that the speaker swings a hammer all day. Owners are a Minority We process much of our information subconsciously. If a man enters a business gathering, for example, and the others in the room are 75% female, he will know instinctively, without consciously counting, that this business meeting or organization is different from others he attends. Similarly, business owners accept their minority status without thinking about it. They expect that the vast majority of the people they meet socially, who attend their church, or who have kids that play sports with theirs, work for someone else. There are places where owners congregate, but otherwise, they don’t expect to meet many other owners in the normal course of daily activity. This can be an issue after they exit the business. You see, telling people “I’m retired” has no distinction. Roughly 98% of the other people who say that never built an organization. They didn’t take the same risks. Others didn’t deal with the same broad variety of issues and challenges. Most didn’t have to personally live with the impact of every daily decision they made, or watch others suffer the consequences of their bad calls. That is why so many former owners suffer from a lack of identity after they leave. Subconsciously, they expect to stand out from the other 98%. “I’m retired” carries no such distinction. This article was originally published by John F. Dini, CBEC, CExP, CEPA on
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